Street Scan: Nighthawk Swoops, Buys St Paul Radiology Business Services

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Many large practices have seen the benefit of spinning off a business services unit, but not many, we suspect, would anticipate a valuation of $62.5 million. That is what St Paul Radiology realized in the recent sale of its business services unit to NightHawk Radiology Services, Coeur D’Alene. In exchange, NightHawk gets more than a major client for its Talon workflow application and new business services division. It acquires a full suite of business services for cross-selling to its 700 customers, 100 experienced employees, and, now that it has billing capability, easy entrée into the business of final reads.

“We look at this as continuing to the lead the professional transformation of the practice of radiology, said Paul Berger, MD, NightHawk CEO, in an investor’s conference call on July 17. “And this is an opportunity to expand the services that we are able to offer our customers. From a financial perspective, it is very attractive, but this is also an opportunity to offer these services to a customer base that is 700 and growing. We are hearing from our existing customers that this is something they would like us to do.”

Tim Mayleben, NightHawk executive vice president and COO, reported that Nighthawk paid $62.5 million in cash, along with a 300,000-share warrant on NightHawk common stock. Financing came from a $100 million 7-year term loan syndicated through Morgan Stanley senior funding. According to Mayleben, the company has drawn on that $100 million facility to fund both the RadLink acquisition, announced in April for $53 million, and the $62.5 million for the current acquisition. The company also kicked in $20 million of its own cash.

Berger described St Paul Radiology to his investors as one of the country’s largest and most progressive radiology groups, with approximately 90 physicians serving more than 40 hospitals and imaging centers. Through the acquisition of the practice’s business services unit, NightHawk will offer revenue cycle management HR facilities services, accounting and financial services, transcription services, records management operation support, and quality assurance program support.

According to Mayleben, the plan is to offer a variable rate plan depending on what services a client needs. “We in general are talking about providing a complete suite for our radiology customers, so if a customer just wants revenue cycle management—the traditional billing, collecting, coding—then the 5 to 8% range is the number,” he told investors. “For the broader suite of services, we think the market is probably going to be quite a bit higher than that.”

Berger speculated that 85-90% of radiology practices outsource a significant share of their business solutions. “We will benefit from the increasing imaging demands placed on our customers,” Berger told investors. “As our customers’ businesses grow, so does ours because of our percentage of revenue business model. As you can tell, we are very excited about this acquisition from both the strategic and financial perspectives.”

Berger, who continues to be a working radiologist, told ImagingBiz.com that NightHawk has focused on how to help radiologists from the outset. “The low-hanging fruit was the nighttime and off-hours coverage, and that was clearly perceived—was, is, and, I think, forever will be—as a help to radiologists,” he notes. “The adoption is evidence that it has been very well received.”

The purchase of St Paul’s business services represents a continuation of that ethic. “As a radiologist, I personally believe we need to focus on efficiency because if there are, and I hope there are not, but if there are any kind of pricing trends, pressures, or reimbursement cuts, one way to help mitigate that is to become more efficient in what we do and the way that we do it. So we want to be able to help the radiologist become more efficient….I was the head of a large group in California, and I knew what we had, and I want to make those things available to everybody.”

Berger dismissed the suggestion that NightHawk is building a national radiology practice. “We’re not a radiology practice at all, all of our radiologists are independent contractors,” he stated. “That’s not something we want to do. If it helps St Paul expand its scope of operations and opportunities, that would be up to them. We will never be a national radiology group.”

St Paul Radiology CEO Mark Kleinschmidt will serve as president of NightHawk’s new business services division,